Debt Ratios for Home Financing
Your debt to income ratio is a tool lenders use to determine how much money can be used for a monthly mortgage payment after you have met your other monthly debt payments.
About the qualifying ratio
Usually, conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (including principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, and the like.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
BeneGroup, Inc. can answer questions about these ratios and many others. Give us a call: 4083956018.